Renting vs. Buying Home in Toronto - Comparison

Introduction

There is an ongoing debate between people, especially in Toronto where rent prices are astronomical and increasing and home prices are increasing, about whether it is better to rent or to buy. Toronto has been recognized as one of the most expensive and unaffordable cities in the world. The average price for rent makes Toronto one of the most comparably expensive cities in Canada for renters. All of this has been made worse as the housing market in the City of Toronto and the Greater Toronto Area (GTA) have grown and more people are moving to Toronto and the Greater Toronto Area. This makes it harder to determine whether it is better to rent or buy in Toronto since whether you are renting or looking to buy in Toronto or the Greater Toronto Area (GTA), chances are that you are going to be spending a lot of money each month on rent or for a mortgage payment.

In the meantime, the City of Toronto is working on developing policies and programmes that encourage the creation of more affordable housing and help stabilize rental and home prices, but this might take some time to come into effect. This is not to say buying a home in Toronto is impossible, it might be harder for some people and it might take longer for some to be able to save up the money needed for a down payment to buy their first home in Toronto or the Greater Toronto Area. While the federal government in Canada has incentives to encourage people to become homeowners and programmes to support first-time homebuyers. In fact, beginning sometime during September 2019, a new programme will be launching to help first-time homebuyers, especially millennials with making a down payment on their first home.

It is important to consider what might be right for one person might not be right for another. One person might benefit from buying a home and this might be ideal for them, their financial situation, needs, goals, etc. another person might be better off renting. Honestly, there is no right answer or an answer that applies to everyone in the ongoing debate about whether it is better to rent in Toronto and the Greater Toronto Area (GTA) or whether it is better to buy in the Greater Toronto Area (GTA).

While some sources and people argue that it is better to buy and you will build equity and come out better in the end if you buy, others disagree saying that you might spend less money renting. Your views on this question will depend on who you are asking, the sources and research they are using that form their opinion and support their argument one way or another, as well as the research, methodology, and findings that are different. This means there are economists and others who are publishing reports or otherwise saying that it is cheaper to rent, and they are arguing that you should rent. While others disagree with their methodology and findings and they are arguing that is cheaper to buy in Toronto and that if you can you should try to buy a home instead of renting a home.

In reality, there are benefits and downsides to renting and buying that will affect you differently. For example, renting may offer you more flexibility but unlike buying a home, you will not be building up equity over time in your investment in buying a home. There is no right answer or wrong answer to this question. In this situation, you need to weigh the pros and cons, consider your financial and life situation, figure out what is best for you and your family and then do what is best for you and your family.

All things considered, this article is meant to serve as a starting point to help you learn about the benefits, advantages, and disadvantages associated with homeownership and buying in Toronto, as well as the advantages and disadvantages of renting in Toronto. This article is meant to be an in-depth analysis and comparison of renting and buying in Toronto, so you can learn more about what your options are. After reading this article you should hopefully feel more empowered to decide whether or not you might not be better off renting or buying.

It is important to remember that every individual is different, and every situation is different. The decision to rent or buy is an extremely personal decision. This decision on where we live and whether or not we own our homes or we are renting our homes is complex, involving our finances, emotions, goals, wants, needs, hopes and plans for our future. Whether you would be better off renting, buying now, even waiting to buy or considering becoming a homeowner down the road, in Toronto or the Greater Toronto Area (GTA) depends on you. Your decision, whatever you decide to do, whether you decide to rent or buy, should be influenced by what your life situation is like, where you hope to be living, what you hope to be doing, what is happening in the real estate market and what home prices look like.

Renting in Toronto

There are many benefits associated with renting especially in Toronto. If you are renting, you do not have to worry about performing maintenance or upkeep for your home, this means if expensive something breaks and it needs to be repaired or replaced, chances are that you will not be on the hook for replacing or repairing whatever broke. Renting provides flexibility since if you are planning on relocating or moving, it is much easier to move if you rent, you speak with your landlord about what you need to do in relation to your lease, do whatever you need to do with your lease, leave and move. When you own a house if you want to move you might need to either sell or rent out your home when you are gone. Renting is great for people who like moving around and not having to commit to living in a certain area beyond the terms of their lease.

Pros for renting in Toronto

Costs

If you decide to rent you will have a rent payment, will have to pay utilities and services, and renter’s insurance but you will not have to pay property taxes. It could be cheaper for you to rent especially if you are sharing your home with others who also share the cost of rent and utilities. If you are renting you will not be responsible for maintenance and the costs associated with performing routine maintenance and upkeep. If something expensive in your home breaks and needs to be repaired or replaced, you are not on the hook for paying this, your landlord is. This could potentially save you headaches and money, especially if a major appliance needs to be repaired or replaced.

Depending on where you are renting and how much you are paying each month, your monthly rent might cost less than mortgage payments + taxes + routine maintenance and upkeep. You also might consider renting if you need to build your credit history or repair your credit score. Renting is great for people who are saving up for a down payment on a home.

Convenience

Renting means you are not in charge of maintenance, upkeep or repairs in your unit or home, your landlord usually is responsible for this stuff, can save money on this. If you rent an apartment or condo you might not have to worry about shovelling snow when it snows since someone else will likely be tasked with doing this. This is ideal for people who do not want to have to worry about maintenance or upkeep since you pay to rent and someone else is taking care of this for you.

Depending on where you rent and where you want to live and can afford to live renting means that you might be able to live in a place with more amenities than you might have otherwise if you were a homeowner. For example, if you decide to rent and live in a newer building close to downtown or in downtown Toronto you might have amenities such as a swimming pool, gym, party room, etc. living here that you might not have otherwise if you were a homeowner.

Flexibility and mobility

Renting is great for those who crave flexibility and mobility. Renting is ideal for people who might not be staying in a certain place for a long time or who have plans to relocate in the next few years. Renting allows you to move more easily and be more mobile since once you move out, you will not be worrying about your rental, that will be your landlord’s job. It is easier to move quickly if you rent than if you are a homeowner if you do decide to move with short notice.

Renting is temporary which can be a good or a bad thing depending on how you see it. This means that you might not be totally tied to living in a certain place beyond a certain period of time. In other words, if you want to move after or when your lease ends, you will be able to move and this should not be a problem. Homeownership is a long-term commitment to living in a certain area that is harder to break in the event that you want or need to relocate.

Cons for renting in Toronto

Renting is not permanent

While everything in life ends at some point and nothing is forever but renting has an expiration date. Your rental ends whenever your lease ends, if you get evicted or your landlord converts your apartment or home into some other type of housing, you decide to move, or something else happens. This means that renting might not be an ideal solution for you if you want to put down more permanent roots in your neighbourhood and area. If you want to put down more permanent roots in a certain area you are better off buying a home.

This means that your rent could increase a lot depending on where you live, who you are renting from, the type of lease you have, etc. In other words, your landlord might be able to increase your rent by a lot depending on how your lease is written and regulations that govern the landlord-tenant relationship. This means that you might have to move if your rent increases and you cannot afford it. Rent usually increases over time even if you live in a rent-controlled or rent-stabilized building.

You have to deal with a landlord

When you rent you have less control over what you can do inside your home and with your home. You will not be able to customize your home as much versus when you own your own home you have much more control of what you can do with your home. You also have to rely on your landlord to do maintenance and repairs this could be good or bad depending on your landlord, situation, etc. There are great landlords, ok landlords, and horrible ones, it can be hard to know what your landlord is like and what type of landlord they are until you move into a place. If you are lucky you could have a great landlord who is prompt when you need to have things repaired or replaced and does the required routine maintenance and upkeep or you might have to ask and remind your landlord frequently about getting things fixed and maintenance.

What you have to show for all of the rent you paid at the end of your lease?

At the end of your lease, if you are paying $2,000 CAD for 12 months, what will you have to show for the $24,000 CAD you spent that year on rent? When you buy, you have the opportunity to build equity in your home and have the potential for a Return on your Investment (ROI). If your mortgage payment was $2,000 dollars per month each month that you pay off your mortgage you be getting closer owning your own home. You do not build equity in your investment when you choose to rent a place.

Things to consider when renting in Toronto

This might be morbid but usually, if you die, you cannot pass on a lease to another person who is not a signer or occupant on the lease, harder to pass on assets to a family member or loved one if you rent a home versus buying. Buying a home and owning a home allows you to pass this onto others, which makes it easier to build wealth and can help you build your net worth. Owning a home can help you to build generational wealth. And it is commonly accepted that homeowners in the long-term tend to benefit more financially than renters because homeownership creates the condition that encourages forced savings that you can accumulate over the years as a homeowner, which can grow to be your nest egg. Financially, you will benefit more from being a homeowner than renting.

Another consideration is you should carefully review any lease before signing it and make sure you understand everything you are signing and the legal implications of any lease that you choose to sign. If you do not do this, you could end up having problems down the road.

Buying in Toronto

There are advantages and disadvantages associated with buying and owning a home. When you own your own home, you have more control over what you can do in your home and customize your home to your preferences and will be able to build equity in your investment. At the end of your mortgage, you will have something to show for all of the money you paid and will if you have no other loans or liens associated with your home, own your home outright, be able to show for all the money you have spent with mortgage payments, as well as other advantages. There are some downsides to buying in Toronto such as high home prices and buying a home is expensive.

Pros for buying in Toronto

Ability to customize your space and control over your space

As a homeowner, you will be able to customize your home so it will be more to your liking. When you rent you have will have restrictions that will prevent you from doing that many things to customize your space. You will also be more in control when you own your home, you can do maintenance and repairs whenever you want to, on your terms and schedule instead of on your landlord’s schedule and have to wait for them to fix things as they break or need to be replaced.

Enjoy the benefits of homeownership

When you buy you can put down more permanent roots in Toronto and invest in the real estate market. And you can experience the pride that comes from being with a homeowner and owning your own home. Also, your net ownership costs for homeownership might be lower than renting, especially if you are living in rental units which might not be as nice as a unit you might own, structurally with the materials used to construct rental units vs. a home that you will own.

Builders and developers especially when building newer units, especially rental units do not tend to use the same quality of materials that they might use when building homes that people buy. There is usually a difference in the structural quality for housing units that are being built that will be rentals instead of housing units that are being built that people will become homes that people will end up buying. You might be wondering what does this mean exactly and how does this affect me, the cost of homeownership and rent prices?

In other words, if you are looking to rent a newly or recently built apartment, your building or complex might have more amenities than an older condo, detached house, or townhouse, but there is a difference in the structural quality for units that are being built as rentals versus some older homes or homes that are being built as to be bought. This means that the rental costs for renting a rental unit might be higher if they were built with the same higher quality materials that are more generally used to build homes for sale.

Since home prices tend to increase over time, you might see a large return on your investment if you are buying in Toronto, even if you are buying a small condo. Depending on where you buy (the neighbourhood), what type of home you are buying, the amenities in the neighbourhood, housing market changes, the size of the home you are buying, etc.

Cons for buying in Toronto

Expensive to buy a home in Toronto and the Greater Toronto Area

Living in Toronto can be obnoxiously expensive which means you can expect to pay top dollar to live here especially as home prices have been increasing over time. It might be hard for you to find a home that fits your needs in terms of size, amenities, location, etc. within your budget. Even condo prices are increasing which is a common choice for first-time homebuyers looking to invest in the Toronto real estate market. As prices increase it is taking people longer to save up the necessary funds for a down payment and it could take you years to save up for a down payment for a home in Toronto.

You also could spend hundreds of thousands of dollars and still only be able to afford to buy a small condo in Toronto since buying a detached house is something that is out of reach for many people. With condo prices increasing since so many people are unable to afford to buy a detached house, and condos are usually cheaper to buy and more entry-level and affordable housing option for first-time homebuyers, means it could be hard to find a great entry-level condo in your budget.

The B-20 programme and higher interest rates are making it harder to get a mortgage

The Superintendent of Financial Institutions (OSFI)’s B-20 programme is making it harder for people to get and qualify for mortgages. With higher interest rates it might be harder for you to qualify for a mortgage with favourable terms and favourable interest rates. This might make your dreams of homeownership seem unattainable,

Investing in real estate is expensive and can be risky

Buying real estate can be expensive and you will need to have a down payment that is usually at least 20% to 35% of the sale price for a home. In some cases, you can put less money down to purchase a home, but you may need to have enough money to pay for private mortgage insurance until you have accumulated at least 22% equity in your home. When you buy a home, you will also have to pay closing costs which can cost thousands of dollars, as well as moving costs and other expenses. In order to qualify for a mortgage, you will need to have a strong credit history, a steady income, a solid employment history, a low debt-to-income ratio, and more so you make a good candidate to be approved for a mortgage with favourable terms and lower interest rates.

Another risk that you might face if you buy a home is that your home might not increase in value in your first few years of homeownership. It is not uncommon that during the first ten (10) years of homeownership that a majority of your mortgage payments will be going toward paying down the interest on your mortgage instead of paying down the principal for your loan you’re your mortgage. If you ever borrow against the equity in your home, you might become what is commonly referred to as ‘house poor’.

An additional risk you face when you decide to buy a home or invest in real estate is the possibility that you might not see a return on your investment (ROI) or the ROI you were hoping to see when the time comes to sell your home. Things change and housing and real estate markets change which means that while you may have paid a lot of money for your money, your home might lose value and not be worth what you paid for it when it comes time to sell resulting in a net loss when you sell your home.

Things to consider when buying in Toronto

If you do decide to buy a home, you will need to own for at least five to ten years before you might see a return on your investment, so your home has enough time to appreciate in value. It is important to consider that you might benefit from a co-living. Recently, there was a story about six adults who decided to pool their money and resources to purchase a home in Toronto’s Little Portugal neighbourhood because they realized they would not be able to achieve a high standard of living if they were living by themselves. Together they could achieve a higher standard of living. If you are purchasing a home by yourself, it might be hard for you to afford to find something that offers a great standard of living given how expensive buying a home in Toronto. You might have to settle for something smaller and with fewer amenities or living in a less desirable neighbourhood if you are buying and living in Toronto compared to other cities.

Investing in real estate and purchasing a home might not be the right choice for you financially or otherwise, you have much less flexibility when you own a home, this is especially true with younger people who travel a lot and might be more likely to relocate and change cities than older generations. You need to really consider whether or not buying a home in Toronto is the best choice for you and your situation.

Similarities between buying and renting in Toronto

Both of these choices are probably going to be really expensive

Whether you are renting or buying in Toronto you will probably be shelling out a lot of money to live in Toronto or the Greater Toronto Area (GTA) given how astronomically expensive rent is in Toronto and the Greater Toronto Area (GTA).

You are responsible for ensuring your belongings

If you rent or buy a home you will be responsible for insuring your belongings and contents of your home, whether you have renter’s insurance or homeowner’s insurance. Renter’s insurance might not cost that much, homeowner’s insurance will probably more expensive than renter’s insurance.

Lifestyle questions you should be asking yourself when deciding to rent or buy

Here are some questions you can ask yourself to determine whether or not you should rent. This is by no means the be-all and the end-all of the questions you should ask yourself and the things you consider before you decide whether you should rent or buy. However, these questions represent a starting point that can help you to decide whether or not you would be better suited to renting or buying.

How long do you plan on living in the area where you are considering renting or buying?

If you are planning on living in the area for less than two years, then you would be better off renting. If you are planning on living in the area for more than two years you might benefit from buying.

Do you want to have more flexibility and be mobile, i.e. do you have any plans for long-term travel or relocations, or do you have long term plans to stay in the area?

If you want to have more flexibility or mobility, or any relocations or long term travel scheduled, renting might be a better option for you. In other words, if you are hoping to travel the world and working remotely for a while, renting might be a better fit for you. If you plan to stay in the area, you might benefit from buying.

Are you working on building your credit history or are repairing your credit history or improving your credit score?

If you are working on building or repairing your credit history, you might be better off renting for now. You might be better off to wait until your credit score and credit history improves before you consider trying to buy a home if you will need a mortgage or financing from a bank, lender, or other financial institution to make this happen. If you will be to make an all-cash offer on a home and have sufficient funds available to make this happen then this will not apply to you.

Are you saving money for a down payment?

If you are saving money for a down payment and do not have the funds for a down payment at the moment you should wait to buy until you will be able to make a down payment.

Do you want to build equity over time in your investment?

If you want to build equity in your investment over time than you should consider buying a home.

Do you want to enjoy the benefits of homeownership?

Do you want to enjoy the benefits of homeownership such as putting down roots, the pride that comes with owning your own home, stability, possibly having a tax-deductible mortgage, etc.?

Do you want to be able to customize your home?

If you really want to customize your home, you would have an easier time with customizing your home if you were to buy and own your own home.

Do you have sufficient funds available to cover down payment and closing costs?

If yes, then you could consider buying a home if you wanted to. If not then you will probably be renting until you have sufficient funds to make this happen.

Are you ready financially, mentally, and emotionally for all of the trials and tribulations that are associated with buying a home, becoming a homeowner, and being a homeowner?

If the answer is yes, then you could consider buying a home. If you do not want to make this commitment or are not ready you might want to wait to buy and continue renting if you are currently renting until you are ready.

Conclusion

As mentioned earlier how and where we live in an extremely individual and personal decision. While you might enjoy certain financial and tax benefits from buying a home, you could eventually even stand to make a profit if and when you sell your home, being a homeowner still might not be right for you. Buying a home, investing in real estate, and becoming a homeowner, are expensive and risky. There is no guarantee that this investment will turn out well for you or be right for you. Not everyone wants to be homeowners, can afford to invest in real estate in Toronto or the Greater Toronto Area (GTA) or will benefit from homeownership. Even with all of the benefits associated with homeownership some people might prefer renting and the flexibility and convenience it can provide.

Renting can be great for people who are not sure how long they will be staying or want to stay in a given area since you do not own your home, it will be easier for you to move and you will not have to worry about what to do with your home when you move. Others might prefer the convenience that renting a home provides since you will not be responsible for performing maintenance and worrying about upkeep in your home, this will be your landlord’s job. Others might dream of becoming a homeowner one day but are unable, unwilling, or not able to buy a home at this point in time. This is valid as well. You need to be able to decide to do what is best for you and your family in this situation.

If you are not ready, willing or able to buy a home right now but dream of becoming a homeowner one day in Toronto or anywhere else, there are some things that you can do that will help you to make this dream a reality when the time comes. Doing these things should help you with getting a mortgage and help you to buy a home whether you end up buying in Toronto, the Greater Toronto Area (GTA) or somewhere else.

First, if you have not already done so, you should check your credit score and report and make it a habit to check your credit report regularly. You will want to dispute any errors in your credit report. You should also if you have not already done so begin working on your credit and be building or even repairing your credit if needed. If you ever want to be able to qualify for a mortgage you will want to work on developing a solid credit history, having and maintaining as high of a credit score as possible given your situation.

If you have a low credit score and want to learn about how you can boost your credit score so you can qualify for a mortgage, you can read this article on how you can boost a low credit score and qualify for a mortgage. Ideally, you want your credit score to be at least 660 or higher, having a score that is above 700 is best if you want to be able to qualify for a mortgage with more favourable terms and lower interest rates.

Second, you will want to lower your debt-to-income ratio (DTI) the amount of you are making each money and how much you have saved up minus your debts. A lower debt-to-income ratio will help you become a more attractive candidate for lenders to give you a mortgage. If you have any large debts (student loans, personal loans, credit card debt, medical debt, etc.) you will want to pay these off or pay them down. You will want to still have credit cards and credit but with low utilization rates, i.e. using no more than 30% if possible, of your available credit, ideally paying off your balance in full each month on your credit cards. If you are lowering your debt-to-income ratio and trying to qualify for a mortgage, you will want to avoid taking on any new or unnecessary debt or applying for multiple new credit cards before applying for a mortgage if possible.

Third, you will also want to research how much your ideal home might cost and begin saving for a down payment. Most down payments are 20% to 35% of a home’s purchase price. You will also create a housing budget so you can decide how much you are willing and able to pay, so you can have a mortgage payment that you will afford. Whether you are budgeting so you can be able to set aside a certain amount of money each month or quarter, year, etc. to make this happen. You will also need to budget at least three to five percent of a home’s value to account for closing costs.

Fourth, if you are a freelancer, self-employed, or person whose employment history has not been steady you will want to be able to show potential lenders that you have a steady income and solid employment history. What this might involve for you or others might look different but having at least one (or more if you can, the more income streams you have, the better) steady and reliable source of income will help you be a more appealing candidate for lenders since they take this information into consideration when giving out loans, credit, and mortgages. There is nothing wrong with being an entrepreneur, self-employed, or a freelancer, but if you want to qualify for a mortgage you need to have proof of income, possibly a letter from your employer, tax returns, and bank statements for anywhere from three months and beyond to show your financial solvency.

If you are reading this article and you are a person who is renting in Toronto and dreaming of owning a home in Toronto, it is possible to become a homeowner in Toronto. It might take you longer now to save up the money to be able to purchase a home than it might have taken you in the past. The journey to becoming a homeowner and being a homeowner is not easy but if you are patient, deliberate, strategic, and do your due diligence, one day you might be able to become a homeowner. You should also be sure to see if you might be able to qualify for any programs that support first-time home buyers.

Additionally, the relative recent slowdown in Toronto’s housing and real estate market in 2019, means that it might be easier for you to find a home in your price range now than it may have been previously since it is no longer a seller’s market in Toronto as it once was in other years such as 2017. Things change so your luck and/or the Toronto housing market might change, keep your eye on what’s happening and any developments that impact housing in Toronto, in case something changes that could help you to buy a home there.

Hopefully, now that you have read this article you have a clearer understanding of all of the benefits, advantages, and disadvantages of renting and buying in Toronto. Ideally, armed with this knowledge you can better decide for yourself if you might be better off renting or buying a home in Toronto is the right decision for you. It is important to always remember that things change, while we might be better suited to renting at one point in our life, later on as our circumstances, wants, needs, hopes, and dreams have changed, we might be better off purchasing a home and all of the benefits homeownership provides. The right answer in this situation is whatever is best for you, your finances, needs, situation, family, etc.

Photo by Tierra Mallorca on Unsplash

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